Without actually going out and buying, REIT shareholders earn a share of the income produced through real estate investments. (Representational Image: Credit: Shutterstock)
Investors can earn regular income in the form of dividends, which are paid from the rental income earned by the REIT.
Investing in the real estate sector is another way to invest your money and get better returns. People invest in residential or commercial real estate projects by purchasing land. A fairly new option in India are Real Estate Investment Trusts (REITs).
REITs are liquid, allowing investors to invest and trade in small amounts, and represent ownership in a real estate vehicle while leaving the management to professionals.
A long standing demand from the real estate sector India For the launch of REIT.
REITs were introduced in India a few years ago to attract investment in the real estate sector by monetizing rental properties.
Embassy Office Parks was the first REIT in India to be listed in 2019.
Currently, the other two listed REITs are Mindspace Business Park REIT and Brookfield India Real Estate Trust – on the Indian stock exchanges and all of these are office properties on lease.
According to NSE, the REIT is designed as a tiered structure with the sponsor setting up the REIT which in turn invests directly or through special purpose vehicles (SPVs) in eligible infrastructure/real estate projects.
When a real estate company decides to form a real estate investment trust, it becomes a sponsor for the REIT and appoints a trustee.
A REIT is a corporation, trust or association that owns and manages a portfolio of real estate properties and/or mortgages.
The REIT has been established as a trust under the Indian Trust Act, 1982 and is registered with the Securities and Exchange Board of India (SEBI).
How do REITs work?
A pool of real estate assets, a REIT can generate regular income and is managed like a mutual fund. For example, a mutual fund collects money from investors and then invests it in the stock market, REIT collects money from retail and institutional investors and invests in real estate properties.
Typically, these are commercial real estate assets such as office space, business parks and shopping malls, which can generate regular rental income.
Without actually going out and buying, REIT shareholders earn a share of the income produced through real estate investments.
Investors can earn regular income in the form of dividends, which are paid from the rental income earned by the company.
Types of REIT in India
equityIn this, the REIT owns all the properties that provide income through rental. They are sole proprietors and lease property to various corporations or individuals. Earned income is distributed to investors.
mortgage: They lend money to real estate players. They earn income not from rent but through EMI or mortgage payments from builders.
hybrid: It has a combination of both owned properties and mortgage-based properties and earns regular income through rent and interest. It helps investors to diversify and earn through both the options.
publicly traded: Investors can buy and sell the shares of this REIT through the stock exchange.
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